Long term care is a costly expense for most families, one that is usually paid for using Medicaid, private insurance or out-of-pocket savings. The challenge is that most middle and upper-middle class families do not qualify for Medicaid. These families may find that the out-of-pocket expenses for long term care can be crippling.
For this reason, many Americans are turning to insurance to cover their long term care expenses. Learn more about how to find the right long term care insurance (LTCI) policy for your family.
With so many different types of LTCI policies out there, choosing the right type of coverage can be challenging. There’s a lot to consider.
If you don’t have a LTCI policy already, should you get one? If you do have one, is it the right type of policy to cover your needs?
According to Barron’s Financial Investment News, statistics show that 70% of 65-year-olds today will need long-term care at some point in their life. Statistically speaking then, the odds that you or a family member will need long term care insurance are pretty high. However, you may not need LTCI if you:
However, “families in the top third of the wealth distribution, but below the top 1%,” or “anyone with $500,000 to $5 million in assets” should have LTCI, says Barron’s Financial News. “For them, a truly catastrophic event, like 20 years of care for an Alzheimer’s disease patient, could easily burn through their assets.”
A problem that some families run into is that they have some form of insurance, but find they don’t qualify when they feel it’s time to use it.
Although every policy is different, generally speaking, to qualify for LTCI a person must be unable to perform a pre-set number of basic daily living activities.
Although these activities and the definition of these activities vary by policy and insurance company, common examples include being:
If you think you will need LTCI and don’t have it, then the time to apply is probably now. Like most insurance policies, the older you are the more you can expect to pay in premiums.
For example, a LTCI policy “purchased at 65 can be well over 50% more than an identical product bought at 55,” Barron’s Financial Investment News reports. “The sweet spot is in the late 50s… the price is still very affordable, and people are starting to think seriously about retirement.”
Health plays an important factor too. Like most insurance policies it’s better to apply when you’re healthy so you pay less in premiums. If you have some health concerns then you might not quality for insurance. Overall health is one of the reasons that 25% of applicants between 60-69 are denied LTCI coverage.
Prices for LTCI depend on:
The difference in prices varies greatly from one company to another and depend on factors like the type of benefits and your geographical location. Annual premiums could run anywhere from $2,000-$7,000 depending on a number of the abovementioned factors.
Keep in mind that insurance companies can increase their annual premiums. For example, in 2012, state insurance regulators in New Jersey granted Metlife’s request to increase LTCI premium rates by 20.5%. In 2014, state insurance regulators in Texas allowed Allianz to increase LTCI premium rates by 75%.
The industry has changed the type of LTCI coverage offered over the years. Some earlier policies will only cover nursing-home expenses while newer policies may include adult day care, assisted living or home care.
Some policies pay a small cash stipend for care by a family member, which is the “most common and least expensive kind,” suggests Barron’s Financial News. “It is also the most comfortable and reassuring for the patient, and the choice that most people would make; to stay in their own homes.”
Some other common types of LTCI policies include:
According to US News, it’s important to consider the following when purchasing (or evaluating your current) LTCI:
In addition to the policy itself, it’s important to look at the company providing the policy. Are they a reliable company that is unlikely to go under? Before purchasing a policy, you should check the financial rating of the insurance company you’re considering doing business with.
In addition to looking at how financially sound the company is, it’s important to also ask about the claims-paying history of the company and know how many LTCI policies the company has sold.
Watch out for new insurance companies or ones that are new to selling LTCI policies. Sometimes (but not always) it’s safest to go with a large insurance company which is financially stable and therefore less likely to raise your insurance premiums.
It’s critical that you factor this information into your decision about LTCI, including the types of policy and coverage options that are best for you.
This information is intended as a guide only. You should reach out to an accountant, elder law attorney, financial advisor or insurance broker about your options and unique situation.